German Economic Team Belarus IPM Research Center
Banking Sector Monitoring
Belarus
Policy Briefing Series [PB/02/2017]
Robert Kirchner, Maria Bobrovskaya
German Economic Team Belarus
Berlin/Minsk, February 2017
German Economic Team Belarus IPM Research Center
Content
2
Key market indicators:
1. Regional comparison
2. Number of banks
3. Market shares
4. Concentration
Sectoral balance sheet items:
5. Loan growth and currency structure
6. Non-performing loans (NPL)
7. Deposits
8. External debt
9. Capital
10. Interest rates
Selected issues:
11. Directed lending
12. Development Bank
Annex: Bank sector statistics
German Economic Team Belarus IPM Research Center
1. Regional comparison
3
• Size of banking sector of Belarus in 2013 was smaller than in neighbouring Russia, Poland and Ukraine if measured by bank assets to GDP
• Until 2015, the gap to Poland shrank, while in Ukraine a significant deleveraging in the banking sector took place due to its economic crisis
Despite the regional economic problems, the banking sector grew until 2015, overtaking Ukraine and narrowing the gap to Poland. Russia remains in the lead in banking penetration
0
20
40
60
80
100
120
Belarus Russia Poland Ukraine
Bank assets to GDP
2013 2014 2015
in %
Source: National Banks of different countries
German Economic Team Belarus IPM Research Center
2. Number of banks
4
• In both 2013 and 2014, the number of operating banks did not change and amounted to 31
• This number dropped in 2015 and 2016 to currently 24, as licenses were withdrawn
– Delta BANK (2015)
– InterPayBank (2015)
– Eurobank (2015)
– North European Bank (2016)
– Bank of Investment Technologies (2015)
• All banks very small (less than 1% asset share)
• One bank was reorganized into a non-bank entity and another one was merged
The number of operating banks reduced by almost a quarter over the last years, as some banks were put under liquidation
Source: NBB; excluding the Development Bank
31 31
26
24
23
24
25
26
27
28
29
30
31
32
2013 2014 2015 2016
Number of banks
German Economic Team Belarus IPM Research Center
3. Market shares
5
• The largest two banks are state-owned: Belarusbank, with 42% market share, followed by Belagroprom (16%)
• Russian-owned BPS-Sberbank is the largest foreign bank with 8.5% of market share on third position
• State-owned banks dominate the sector in terms of market share (63%), followed by banks with Russian capital (27%) and private banks (10%). In the latter group also banks with non-Russian foreign capital are included
• The biggest EU-owned bank is Priorbank (Raiffeisen from Austria) with 4% market share (rank 7)
State-owned banks dominate with almost two-thirds of market share
Belarusbank 42.3%
Belagro-prombank
15.5%
BPS-Sberbank 8.5%
Bank Bel (VEB) 6.2%
Belinvestbank 5.6%
Belgazprom-bank 5.0%
Priorbank (Raiffeisen)
4.2%
Alfa-Bank 2.1%
Bank VTB Belarus
2.0%
Others 8.5%
Banking sector assets
State-owned banks 63% Russian
banks 27%
Private banks (incl.
Western) 10%
Market share by ownership
Source: NBB, own calculations, data as of 1 October 2016
Source: NBB, own calculations, data as of 1 October 2016
German Economic Team Belarus IPM Research Center
4. Concentration
6
• Three largest state-owned banks (Belarusbank, Belagroprombank, Belinvest) and two banks with Russian capital (BPS-Sberbank, BelVEB) have been the Top-5 banks over the last four years
• The aggregated market share of these 5 banks was already quite high at 79% in 2013 and increased gradually to 82% in 2016
High and slightly increasing concentration
Source: NBB, own calculations based on total assets
Share of Top-5 banks
0
10
20
30
40
50
60
70
80
90
2013 2014 2015 2016 (H1)
in %
H1-2016
German Economic Team Belarus IPM Research Center
5. Loan growth
7
• In early 2013, (corporate and household) loan growth was at 36% yoy in nominal terms; this gradually decreased and entered negative territory in summer 2015. Currently it is -2.4%
– Similar developments in real terms
– Reflection of both supply and demand-side factors
• The loan dollarization ratio increased over the period considered and amounts to 56% in end-2016, after 46% in early 2013
– In the first quarter of 2015 there was a sharp increase in the share of foreign currency loans due to the depreciation of the Belarusian ruble in early 2015
Loan growth declined significantly over the last years; the loan book is now shrinking
Source: NBB, Note: FX adjusted
Source: NBB
-20%
-10%
0%
10%
20%
30%
40%
Jan
-13
Ap
r-13
Jul-
13
Oct
-13
Jan
-14
Ap
r-14
Jul-
14
Oct
-14
Jan
-15
Ap
r-15
Jul-
15
Oct
-15
Jan
-16
Ap
r-16
Jul-
16
Oct
-16
Loan growth
Total nominal loan growth Total real loan growth
35
40
45
50
55
60
65
Jan
-13
Ap
r-13
Jul-
13
Oct
-13
Jan
-14
Ap
r-14
Jul-
14
Oct
-14
Jan
-15
Ap
r-15
Jul-
15
Oct
-15
Jan
-16
Ap
r-16
Jul-
16
Oct
-16
in % of total loans
Share of foreign currency loans
in %
German Economic Team Belarus IPM Research Center
6. Non-performing loans (NPL)
8
• After some years with a rather low level of non-performing loans, there was a sharp increase in bad loans due to a serious slowdown of economic dynamics and the unstable financial position of many (state-owned) companies since early 2016
• Since the end of 2016, this development reversed slightly; NPLs currently 12.8% of assets subject to credit risk
– Transfer of (agricultural) NPLs to new Asset Management Agency (AMA) main factor
• In terms of sectoral breakdown, manufacturing enterprises are the most troubled borrowers; also agricultural enterprises struggle to service their debt in time
Worsening of asset quality key indicator to observe
Source: NBB
Source: Own calculations based on NBB data
3
5
7
9
11
13
15
17
Jan
-13
Ap
r-1
3
Jul-
13
Oct
-13
Jan
-14
Ap
r-1
4
Jul-
14
Oct
-14
Jan
-15
Ap
r-1
5
Jul-
15
Oct
-15
Jan
-16
Ap
r-1
6
Jul-
16
Oct
-16
Jan
-17
in %
0
0.4
0.8
1.2
1.6
Jan
-13
Ap
r-13
Jul-
13
Oct
-13
Jan
-14
Ap
r-14
Jul-
14
Oct
-14
Jan
-15
Ap
r-15
Jul-
15
Oct
-15
Jan
-16
Ap
r-16
Jul-
16
Oct
-16
Jan
-17
BYN bn
NPLs by economic sectors
trade and retail services mining and manufactoring
agriculture, hunting and forestry other
NPLs as a share of assets subject to credit risk
manufacturing
German Economic Team Belarus IPM Research Center
7. Deposits
9
• After increasing until end-2015, FX deposits started to fall and decreased by USD 1.3 bn until early 2017
• This was caused by low returns on FX deposits, a decline in the dollar and a drop in real and nominal household income
• Deposits in national currency also fell during 2H2015, but started to rise thereafter
• In line with developments on the loan side, the dollarization ratio on the deposit side jumped and remains with 70% very high, above historical norms
Corporate and household bank deposits fell in 2H2015 (national currency) and 1H2016 (FX); deposit dollarization is very high
Source: NBB, own calculations
Source: NBB, own calculations
10.0
10.5
11.0
11.5
12.0
12.5
13.0
3
4
5
6
7
8
9
Jan
-13
Ap
r-13
Jul-
13
Oct
-13
Jan
-14
Ap
r-14
Jul-
14
Oct
-14
Jan
-15
Ap
r-15
Jul-
15
Oct
-15
Jan
-16
Ap
r-16
Jul-
16
Oct
-16
Jan
-17
USD bn BYN bn
Bank deposits
55
60
65
70
75
80
Jan
-13
May
-13
Sep
-13
Jan
-14
May
-14
Sep
-14
Jan
-15
May
-15
Sep
-15
Jan
-16
May
-16
Sep
-16
Jan
-17
in %
Deposit dollarization ratio
BYN deposits, bn FX deposits, USD bn
German Economic Team Belarus IPM Research Center
8. External debt
10
• External debt of the banking sector grew strongly during 2013-2014, when it peaked at USD 8.4 bn (Q22014)
• Significant part of that debt was long-term (USD 5.6 bn), while short-term external debt amounted to USD 2.7 bn (at original maturities)
• Since then, a process of gradual deleveraging took place, which brought the debt stock down to USD 6.5 bn in Q3 2016 (decline by 22%)
• Reflection of high FX liquidity in the banking system
External deleveraging during the economic crisis observable
Source: NBB
0123456789 USD bn
External debt of banking sector
Long term external debt of banking sector
Short term external debt of banking sector
German Economic Team Belarus IPM Research Center
9. Capital
11
• The system-wide capital adequacy ratio (CAR) stands currently at 18.6% (according to NBB norms) and remains above regulatory norms (10.6%)
• However, an asset-quality-review in mid-2016 that covered 92% of the sector revealed that in a stress-scenario, CAR would drop to 10.8%
• The main reason are the problem loans in the corporate sector (slide 8)
• Due to the sharp increase of NPLs, aggregate banks’ profits and their return on assets declined in 2015, but recovered to some extent in 2016, which is also due to the NPL-transfer to the AMA
Pressure on capitalisation requires measures to boost CAR at certain institutions
Source: NBB
Source: NBB, own calculations based on NBB data
13
15
17
19
21
23
Jan
-13
May
-13
Sep
-13
Jan
-14
May
-14
Sep
-14
Jan
-15
May
-15
Sep
-15
Jan
-16
May
-16
Sep
-16
Jan
-17
in %
Capital adequacy ratio
0.0
0.5
1.0
1.5
2.0
0
200
400
600
800
1,000
2013 2014 2015 2016
in % BYN m
Banking sector profit
Profit ROA
German Economic Team Belarus IPM Research Center
10. Interest rates
12
• During 2013-2016, interest rates on BYN loans decreased from 36% to 19% but still remain rather high
• A negative interest margin existed in national currency in different periods between 2013 and 2015
– Mainly driven by the need to increase deposit rates during periods of stress
• The National Bank reduced policy rates during 2013-2014, but had to hike in early 2015, when pressure on the BYN was building up. It resumed its interest-rate-cutting cycle in 2016
• Policy rates are in real terms positive
Declining policy and loan interest rates
Source: NBB, own calculations based on NBB data, Note: corporate and household loans and deposits
Source: NBB, own calculations based on NBB data
10
20
30
40
50
Jan
-13
Ap
r-13
Jul-
13
Oct
-13
Jan
-14
Ap
r-14
Jul-
14
Oct
-14
Jan
-15
Ap
r-15
Jul-
15
Oct
-15
Jan
-16
Ap
r-16
Jul-
16
Oct
-16
Jan
-17
in %
Interest rates on loans and deposits
Nominal interest rate on BYN deposits
Nominal interest rate on BYN loans
-10
0
10
20
30
40
Jan
-13
Ap
r-13
Jul-
13
Oct
-13
Jan
-14
Ap
r-14
Jul-
14
Oct
-14
Jan
-15
Ap
r-15
Jul-
15
Oct
-15
Jan
-16
Ap
r-16
Jul-
16
Oct
-16
Jan
-17
in % NBB base rate
nominal NBB base rate real NBB base rate
German Economic Team Belarus IPM Research Center
11. Directed Lending
13
• Directed lending by the government is a key channel of state influence on Belarus’ economy
– Key beneficiaries are industry, agriculture and housing
• This type of lending distorts the financial system as well as the real sector
– In 2015, interest rates on such loans amounted to 9%, while the non-subsidized borrowers paid 34% on average
• The respective share of the loan book is slightly less than 40%; it declined during 2016
• While traditionally commercial banks executed this type of lending, the Development Bank (see next slide) became increasingly involved
Reducing directed lending further is an important step towards a more market-oriented model
on market conditions
60.5%
directed lending 39.5%
Structure of bank loans as of 1 January 2016
on market conditions
61.9%
directed lending 38.1%
Structure of bank loans as of 1 October 2016
Source: NBB
Source: NBB
German Economic Team Belarus IPM Research Center
12. Development Bank
14
• Established in 2011 as a development institution owned by the state, the bank grew quickly over the following years
– No attraction of private deposits, financed mainly by equity and domestic and external debt (government-guaranteed in case of local bonds)
• The bank is involved in directed lending activities (about one-third of the total flow), as well as commercially-oriented business
• Near-term goal should be to concentrate new directed lending at the DB and relieve commercial banks from this burden
• Medium term: DB focus on development finance in areas where markets fail like a “standard” promotional bank
Significant new player in the banking landscape
0
1
2
3
4
5
2012 2013 2014 2015 2016 (1 H)
BYN bn
Balance sheet development
Assets Liabilities Capital
Source: Development Bank, own calculations based on DB data
Source: Development Bank
4.4
4.6
4.8
5
5.2
5.4
5.6
2012 2013 2014 2015
Share of assets to GDP
in %
German Economic Team Belarus IPM Research Center
Annex: Bank sector statistics (excluding Development Bank)
15
Balance sheet data 2013 2014 2015 2016
Total assets, BYN m 39 516.35 48 153.08 63 046.33 64 467.00
growth in % yoy 23.00 21.90 30.90 2.30
in % of GDP 62.06 61.86 72.49 68.35
Total loan, BYN m 25 939.09 31 398.86 37 777.12 35 851.00
growth in % yoy 28.40 21.05 20.30 -5.10
in % of GDP 40.70 40.30 43.40 38.01
Loans to private enterprises, BYN m 7 944.55 10 334.20 13 198.06 11 860.20
growth in % yoy 19.20 30.08 27.70 -10.10
in % of GDP 12.50 12.30 15.20 12.57
Loans to households, BYN m 5 397.12 6 293.61 6 878.84 7 155.40
growth in % yoy 34.30 16.60 9.30 4.02
in % of GDP 8.50 8.09 7.90 7.59
Loans in foreign currency, BYN m 13 027.58 15 969.46 21 593.86 20 089.10
growth in % yoy 41.80 22.60 35.20 -6.97
in % of GDP 20.50 20.50 24.80 21.30
Loans in foreign currency (% of total loans) 50.22 50.86 57.16 56.03
Total deposits, BYN m 17 267.66 21 427.28 29 520.66 29 946.00
growth in % yoy 19.50 24.10 37.80 1.44
in % of GDP 27.10 27.50 33.90 31.75
Deposits from households, BYN m 10 233.85 13 433.30 19 272.04 19 074.20
growth in % yoy 31.10 31.30 43.50 -1.03
in % of GDP 16.10 17.30 22.20 20.22
Total loans (% of total deposits) 150.20 146.50 127.97 119.72
Structural information
Number of banks 31 31 26 24
Market share of state-owned banks (% of total assets) 63.70 63.40 63.80 -
Market share of foreign-owned banks (% of total assets) 33.18 33.23 33.75 -
Profitability and efficiency
Return on Assets (RoA) 1.9 1.7 1.0 1.3
Return on Equity (RoE) 13.8 13.1 8.4 10.8
Capital adequacy (% of risk weighted assets) 15.5 17.4 18.7 18.6
Non-performing loans (% of total loans, eop) 4.45 4.37 6.80 12.80
German Economic Team Belarus IPM Research Center 16
Contact
Robert Kirchner
Maria Bobrovskaya
German Economic Team Belarus
c/o BE Berlin Economics GmbH
Schillerstr. 59, D-10627 Berlin
Tel: +49 30 / 20 61 34 64 0
Fax: +49 30 / 20 61 34 64 9
www.get-belarus.de
Twitter: @BerlinEconomics